IBM CEO Arvind Krishna has explained why he disclosed weak quarterly figures before IBM’s earnings call. He said an established leadership rule guided the timing. This rule calls for addressing difficult issues early. The decision gave investors notice, but IBM stock recorded a decline.
The July 14 letter presented selected preliminary second-quarter results eight days before the July 22 call. IBM shares closed 25% lower that day. Reports described the move as the company’s steepest one-day fall in more than a century. The decline followed figures that missed market expectations.
IBM shares later recovered to about $240 by August 21, up 11% over the past month.
Krishna told CRN that he considered his options after IBM identified the expected shortfall. He then followed a principle used during his six years leading the company. “If there’s a hard thing to be done, do it earlier rather than later,” Krishna said. He believed delaying the disclosure would extend questions about IBM’s response.
Moreover, Krishna wanted the earnings call to focus on corrective steps instead of the timing of the warning. He acknowledged uncertainty over whether the approach proved correct. Still, he said early disclosure allowed management to discuss its planned response. Krishna became IBM’s chief executive in April 2020 and later added the chairman role.
IBM’s preliminary results showed second-quarter revenue of $17.2 billion, up 1% from the previous year. Software revenue increased 5%, while consulting revenue stayed flat. Infrastructure revenue fell 7%.
Adjusted earnings reached $2.93 per share, while GAAP earnings fell 2% to $2.27 per share. However, Red Hat revenue grew 11%, and distributed infrastructure revenue rose 37%. IBM ended the quarter with about $500 million in distributed infrastructure backlog, according to the preliminary release.
In the letter, Krishna said clients shifted capital spending toward servers, storage, and memory late in June. Customers sought scarce equipment before expected price increases. IBM had anticipated some supply pressure but underestimated the scale of the budget shift. Cybersecurity concerns also diverted clients’ attention. “We did not adapt and move quickly enough,” Krishna wrote.
IBM also said several large deals missed their expected closing dates. Those delays accounted for most of the shortfall, according to Krishna. The company’s Z mainframe revenue later showed a 42% second-quarter decline. That performance pulled infrastructure revenue down to $3.84 billion, while software revenue reached $7.76 billion.
After finalizing the quarter, IBM lowered its 2026 constant-currency revenue growth forecast to 4% to 5%. Management previously expected growth above 5%. Final revenue reached $17.16 billion, below the $17.58 billion average estimate reported by Reuters. Adjusted profit also missed the $2.97 estimate by four cents.
Krishna told analysts that large capital expenditure projects caused most of the missed second-quarter business. About one-third of those projects had closed during the third quarter by July 22. “A lot of the demand is deferred, not destroyed,” he said. IBM reported no evidence that clients were leaving its mainframe platform.
Meanwhile, IBM kept its focus on margin expansion, cash generation, artificial intelligence, and quantum computing. Krishna said the company must stay prepared for scrutiny from shareholders, board members, and activist investors. He identified client service and employee investment as management priorities.
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